At last, bankers are paying the price for their bailouts – in Ireland, at least. The decision by Brian Lenihan to refuse to hand over any more cash to the stricken Allied Irish Banks if it pays out €40m in bonuses to 2,400 staff is the most decisive move yet by a finance minister to stamp out the bonus culture.

Then Darling stopped bank bosses taking bonuses but allowed RBS to keep shelling out to the overpaid troops on trading floors on the basis that without the payments, they would walk out of the door – and take lucrative business with them. With his reputation in tatters and facing an election next month that is likely to sweep his Fianna Fáil party out of government, Lenihan may be hoping to retain some dignity among his furious electorate by halting the bonus payouts at a bank that is likely to be nationalised in the coming weeks.

The fact that AIB felt it needed to pay bonuses at all demonstrates how badly broken the bonus system is. Logically it would seem implausible that anyone working at a bank needing a taxpayer bailout could be entitled to a bonus. Rationally it would seem any banker working in such an institution would be ashamed to take a payout. Rightly the bonus system should operate in such a way that they would not be in line for such a cash boost at all.

However, such is the structure of these sorts of bonuses that they are paid regardless of performance. In the case of AIB, the bonuses that have been stopped were deferred payments granted in 2008 – the year the wheels started to fall off the industry.

The bank had decided to make the payments after being taken to court by a trader. John Foy won a ruling that he should be paid the €161,000 he was awarded in 2008. Lenihan cannot override that judgment, but the bill to pay off the rest of Foy's colleagues could be €40m.

When the Guardian and others reported this fact a fortnight ago, the outcry in Ireland made the embattled minister rethink his options. Last week he announced an amendment to his austerity budget that will slap a 90% tax on bankers' bonuses in the future. After a weekend of thought, he came up with his latest plan to tie the IMF/EU bailout – likely to be €9bn at AIB – to a pledge from the bank not to pay the bonuses.

The new management team at AIB will welcome Lenihan's tough stance. But, across the Irish sea, bankers in the City were today watching nervously, aghast even, that the Irish government could take such an extraordinary step.

Bankers have warned time and again that if their bonuses are curtailed, they will move to places where there are no such restrictions – robbing the country of vital income.

Will 2,400 furious bankers walk out of the doors of AIB in Dublin and pitch up in Hong Kong, Singapore or even London? Time will tell, but Lenihan's face-saving exercise could have repercussions far beyond Dublin if AIB's doors fail to revolve, opening the way for other governments to stop big bonuses.